Canberra's Political Dysfunction Could Hurt The Australian Economy

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The Abbott Government inherited an economy in need of transition and was greeted with a wave of enthusiasm from business and consumers convinced that an economic improvement would follow the change in government.

Election campaigns are usually bad for the economy – they just seem to slow spending, hiring, and investment. So the long campaign of last year was toxic for the economy.

And the election was a breathe of fresh air after the long election campaign and the uncertainty that it caused.

It is a situation that Paul Bloxham, chief economist at HSBC Australia, hopes Australia won’t find itself in again but recognises is an increased risk as the Government struggles to get its agenda through the Senate.

Bloxham told Business Insider that from a ratings perspective Australia remains in good shape, so he is not expecting any action there, but he worries that the transition in the economy taking place remains “fragile”. He said that the biggest risk to the economy is that the increased uncertainty around the Government’s policy agenda can have a prolonged impact on business and consumer confidence and thus hurt economic activity.

Consumer sentiment has tanked since the budget but Bloxham noted that business sentiment had remained resilient. He said it was employment and hiring intentions which were the key to the transmission to a positive flow to housing and thus consumer sentiment.

The risk is that a protracted Senate blockage hits confidence and business stops hiring, but Bloxham said ANZ job ads data this week was a sign that business is holding up.

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